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"The Banker's Lien Apart from any specific security, the banker can look to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognised as such."
In Brandao v. Barnett, it was stated as under: (All ER p.722-H) "Bankers, most undoubtedly, have a general lien on all securities deposited with them, as bankers, by a customer, unless there be an express contract, or circumstances that show an implied contract, inconsistent with lien."
The above passages go to show that by mercantile system the Bank has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the general lien is a valuable right of the banker judicially recognised and in the absence of an agreement to the contrary, a Banker has a general lien over such securities or bills received from a customer in the ordinary course of banking business and has a right to use the proceeds in respect of any balance that may be due from the customer by way of reduction of customer's debit balance. (emphasis supplied)
Corporation Bank, East Godawari [(1999) 3 ALT 443] upheld the right of the Bank to retain the gold ornaments pledged in exercise of its general lien till all the debts are cleared. This Court in Thankappan v. Muthukoya [(2011) 2 KLT 907] has held that the general lien can be exercised by a banker even with regard to debts which have become barred by limitation. It was observed thus:-
In the light of the authorities mentioned above, the principles are fairly clear. The bank has general lien over the securities which come to its hands. It may be in the form of money, negotiable instrument or any form of security or it may be goods. S.171 of the India Contract Act statutorily recognises the banker's lien. To apply the banker's lien, it is not necessary that the debt in respect of which and for the recovery of which the lien is exercised should be one which is not barred by limitation. Bar of limitation for realisation of a debt does not destroy or extinguish the right of the creditor for the debt. It only destroys the remedy. The creditor is not precluded from appropriating or adjusting the amounts of the debtor which come to his hands and from appropriating it towards a barred debt. (emphasis supplied)
7. Thus a Bank has a general lien over all forms of security including gold ornaments deposited by or on behalf of the borrower in the ordinary course of banking business for the general balance of account due from him. The Bank has a further right to sell the securities like the gold ornaments and utilise the proceeds in discharge of the liability due by the borrower in respect of other loans even. This is of course subject to the condition that there is no 'contract to the contrary' between the borrower and the Bank whereby the right of general lien could be statutorily waived. The general lien can be exercised when there is a bailment of gold ornaments by way of security for the repayment of a debt and certainly not in respect of goods entrusted to the Bank for safe custody in a locker. The general lien shall be presumed even in regard to advances made subsequent to the loan availed by pledging the gold ornaments as is evident by Section 174 of the Act.